The
year 2023: Top five sectors to watch
As we enter
2023, it’s natural for investors to be on the lookout for the best sectors to
watch in the Indian markets.
While the past
year was marked by uncertainty and volatility due to the Covid-19 pandemic, the
Indian economy has shown resilience, and there are several sectors that are
expected to perform well in the coming year.
we will take a closer look at some of the
sectors that are likely to be the most promising in 2023, based on a
combination of factors such as economic growth prospects, the regulatory
environment, and market trends.
Whether you are
a seasoned investor or a beginner looking to dip your toes into the market,
this blog will provide you with valuable insights and help you make informed
decisions about where to invest your hard-earned money.
1. Specialty
chemical
China plus one.
You've probably heard this term somewhere if you've kept up with the latest
developments.
This is a
structural megatrend in the making, and possibly the best opportunity for
Indian chemical companies to step up their game.
Allow us to
explain this with a bit of context.
Not many
understand what happens in China because there’s no decentralized government in
the country. The power is in the hands of very few people, and the people's
opinions hardly matter. Consider it as a superpower.
What used to
happen earlier was that China used to abide by the rules laid out. But this
isn’t happening anymore under the leadership of Xi Jinping.
Of course, other
countries won’t just stand by and let China become a superpower. Enter China
plus one.
This is
basically a shift made by companies across the globe to move out at least some
of their operations (if not all) out of China and shift it to other emerging
countries like India or Japan.
The specialty
chemical sector is the biggest beneficiary of this shift. Just imagine this…if
India manages to capture even a 5% market share from China, the country could
see demand worth US$8 billion. That’s massive.
The shift has
already started. Several Indian specialty chemical firms are setting up
manufacturing units for meet the demand.
With more
companies seeking to de-risk their supply chains from China, India could become
the most attractive chemical hub in the coming 2-3 years.
You should keep
an eye on the bigger chemical players, as they have the ability to ramp up
their capacity and expand.
Also watch out
for specialty chemical firms which dominate the segment they operate in…
On the top of
our heads, we could think of PI Industries, Atul, Aarti Industries, Apcotex
Industries, and Balaji Amines making the most of this megatrend.
2. Textile
In a world full
of technological advancements, investors tend to focus on stocks from hot
sectors like green energy or artificial intelligence, for that matter.
They end up
ignoring conventional and dull sectors. That’s where they make the biggest
mistake. Even dull sectors can make a strong comeback when the tide turns in
their favor.
One such sector
in the current context is textiles.
Earlier, global
companies used to get cheap textile products from Bangladesh and Vietnam,
making it tough for Indian companies to export. The situation changed in early
2022 when a ban was imposed on import of cotton from China to the US. Indian
exports boomed.
However, demand
was badly hit owing to recession in the following months. The slowdown was on
the cards as Indian textile players export heavily to US and Europe.
The nail in the
coffin for them was that some companies already had capacity expansion plans.
With demand down in the dumps, textile stocks were hammered on the bourses.
The tide is
slowly turning for the industry as cotton prices are on a downtrend. Domestic
demand is also looking strong in case exports dampen sentiment.
Strong players
like Trident, KPR Mill, Arvind, Vardhman Textiles, Lux Industries, among other
are down around 30-40% in the past one year. They could bounce back in 2023.
3. Infrastructure
This is an
obvious name in the list. You probably thought of infrastructure when you
opened this article, didn’t you?
In the past
couple of years, India’s GDP growth has remained moderate. We believe things have
bottomed out.
Why we say this
with almost surety is because of government's focus on infrastructure,
affordable housing, and capital expenditure.
The government
has targeted more than a trillion-dollar infrastructure spending in the next 5
years.
We are already
seeing a strong momentum in construction equipment sales, record road
construction, and capacity expansion by companies. All of this proves that we
have a strong capex cycle ahead.
The obvious way
to play this theme is by investing in good quality infrastructure companies
which have a track record of timely execution.
Larsen &
Toubro (L&T), IRCON International, NCC, Rites, and Railtel Corporation
could do well this year owing to their strong balance sheets and healthy order
books.
4. Pharma
We know what
you’re thinking. Why have we listed a hated sector with hated stocks in this
article? A sector that has time and again been questioned and always has a dark
cloud looming on top in the form of USFDA.
The answer to
this lies in the recent Covid outbreak in China.
Worries about
the Covid outbreak in China have made investors nervous and the stock markets
jittery.
It’s déjà vu for
pharma companies all over again as they have started to show a similar movement
like 2020.
Pharma companies
were the biggest beneficiaries during the initial Covid period as demand for
medicines boomed. It was an obvious choice for investors as the sector also
came with a ‘defensive’ tag.
Now, as Covid
cases have started to rise again in China, pharma stocks are moving both ways.
Mind you, not
all pharma companies will be beneficiaries and you need to be selective to play
this theme.
The way we see
it, Granules India, IOL Chemicals, Dr Lal PathLabs, and Cipla stand to be the
biggest beneficiaries.
Cipla because of
its huge respiratory portfolio (the company still continues to expand its
respiratory portfolio!)
IOL Chemicals
because of Ibuprofen (this drug was sold like hot chocolates in initial Covid
days)
Granules India
because it’s the largest seller of paracetamol.
And Dr Lal
PathLabs because diagnostic players will need to carry out testing of Covid
(and also because of its classy balance sheet).
5. Tech
The reason we
have listed the tech sector towards the end is because it’s a high-risk high-reward
scenario.
Owing to global
recession concerns, attrition shooting up, and margins under pressure, IT
stocks such as TCS, Infosys, Wipro and HCL Tech went on a correction mode and
fell up to or more than 40% from their peak!
How often do you
see a bluechip stock correct more than 50%? It’s very rare, right?
Now imagine what
would have happened with new age tech stocks like Paytm, Zomato, Nykaa and the
likes.
These growth
stocks crashed more, (70% in case of Paytm) as higher interest rates are always
a no-go for them. The only reason growth stocks boomed was because of the low
interest rates.
As things stand
now, majority of the newly listed stocks are down over 50% from their peak.
Select stocks
from the space are looking attractive, at least from a medium-term perspective
till the end of 2023.
We would give
preference to Zomato, Paytm, and Nykaa.
Before you start
questioning, we know that some of these are loss making businesses and are
burning cash at the moment.
But do you
really see Paytm going away from your phones anytime soon? Will you let go of
the app which has all the needs at one tap?
Similarly,
Zomato enjoys a dominant market share and has taken several measures to cut
down on expenses.
Nykaa is already
profitable and a known brand among many consumers. With a strong management at
the help, the company is expected to do well in 2023.
Jhaveri
Securities has a strong research team which is well qualified to do research on
various industry segments. You can connect with our research team to get
insights on emerging industry sectors.
That’s it from
us for the time being. We hope this article provided crisp insights and aroused
your curiosity to find the best stocks for 2023.
Please connect
to Jhaveri Customer support desk to invest in verity of products available with
Jhaveri Group.